What is it about?
This study examines the effect of formal financial intermediation (inclusion) on informal financial intermediation and the use of cash for economic activities. Using data from the Global Findex 2014, we examine whether the use of formal financial intermediaries reduces cash preference and the use of informal financial intermediaries.
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Why is it important?
Our empirical results show that informal financial intermediation is positively associated with formal financial inclusion. The relationship between informal and formal financial intermediation is complementary, which demonstrates the importance of informal financial system of Africa. The use of formal financial intermediaries significantly reduces the preference for holding cash, implying that a robust financial system infrastructure has the potential of mobilizing excess liquidity in the informal economy of Africa for growth and development.
Perspectives
Informal financial intermediaries, especially ROSCA’s and moneylenders, need to be included in the regulation of financial services.
Dr Krishna Reddy
Toi Ohomai Institute of Technology
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This page is a summary of: The impact of formal financial inclusion on informal financial intermediation and cash preference: evidence from Africa, Applied Economics, March 2019, Taylor & Francis,
DOI: 10.1080/00036846.2019.1593316.
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